Question

assume that for years ago you purchased a corporate bond that pays 3.70% with a face value of $1000 for years later comparable bonds are paying 4.25%. What is the approximate dollar price for which you could sell this bond

Answer 1

To sell the bond, it can be approximate to $962.73.

Step-by-step explanation:

To determine the approximate dollar price for which you could sell this bond, you need to consider the current interest rates. Since comparable bonds are currently paying 4.25%, which is higher than the 3.70% you are receiving, the value of your bond will be lower than its face value of $1000.

To calculate the approximate dollar price, you can use the formula:

Approximate Dollar Price = Face Value / (1 + Current Yield)

Using this formula, you can calculate:

Approximate Dollar Price = $1000 / (1 + 0.0425) ≈ $962.73